Compliance Blog

Written by Elizabeth M. Young LaBerge, Senior Regulatory Compliance Counsel, NAFCU

The NAFCU Compliance Team is continuing to get questions about adverse actions – likely because it is a supervisory priority for NCUA. In the past, we have blogged about adverse action notices and prequalifications, joint applicants, and membership applications and third parties. Today, we’re going to have a quick refresher on incomplete applications under Regulation B.

Regulation B defines an “application” as “an oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested.” 12 CFR § 1002.2(f). Examples in the commentary clarify that some things are not applications under this definition, such as general inquiries about current rates or products offered by the credit union - these are informational in nature and not actually a request for credit. Similarly, a credit request that is not made in accordance with the credit union’s procedures may not be an application.

Under Regulation B, there are two kinds of applications: complete applications and incomplete applications.  A “complete application” is one where the credit union “has received all the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested…” 12 CFR §1002.2(f). An incomplete application is any application that does not meet that bar. It is important to note that under paragraph 2(f), credit unions have a duty of due diligence to try and obtain information to complete an application, including reaching out to third parties. But, sometimes, despite due diligence, the application still remains incomplete.

When an incomplete application is received, a credit union can choose to proceed in one of two ways. Subsection 1002.9(c)(1) requires that a creditor either:

• take action on the incomplete application and provide a notification under paragraph 9(a)(1) within 30 days of receiving it; OR

• provide a notice of incompleteness under paragraph 9(c)(2) within 30 days of receiving the application.

The commentary to paragraph 9(a)(1) somewhat clarifies these options and their utility. While option one allows for taking any action (including approval), comments 3 and 4 recognize that, in most cases, if a credit union is ready to take action on an incomplete application, it is likely that the action will be a denial. After all, if you had the information necessary to approve an application, is it really incomplete?

An application might also be denied simply because it is incomplete. The credit union does not have sufficient information to approve the application, and comment 3 highlights that, in these situations, either of the two options may be useful. Denying the application clears it off the decks, and the applicant can come back and start over. 12 CFR Part 1002, Supp. I, comment 9(c)(2)-1. In the alternative, the credit union can provide the notice of incompleteness and give the applicant a chance to complete the application so it can be evaluated.

However, an application could be denied because the credit union has enough substantive information to tell that the application, even once complete, will not be approved. Comment 4 indicates that when this is the case, the credit union can go ahead and evaluate the incomplete application and provide an adverse action notice to the applicant. Regardless of which options is chosen, no further notice is required.

Paragraph 9(c)(3) regarding oral notice does not provide a third alternative. It just clarifies that a credit union can discuss what is missing with the applicant, but this does not satisfy a notice requirement or alter the timelines. A written notice under one of these two options is still required. See, 12 CFR Part 1002, Supp. I, comment 9(c)(3)-1.

It is important to note that the incompleteness provisions do not apply to preapprovals that meet the definition of applications. See this blog post for more information on when that is the case. Also, for business credit applications where a notice is triggered under subsection 9(c)(1), the notification requirements in subsection 9(a)(3) could also be used.

Adverse Action and CA Privacy Law Webinars Coming Up

Need more discussion on adverse actions? Want more information about California’s Consumer Privacy Act? NAFCU has you covered.

March 5: Taking an Adverse Action Under Applicable Federal Statutes

March 12:  CA’s Consumer Privacy Act (CCPA) and the Future of Privacy Laws Across the US and the World

HMDA Survey!

We're still looking for responses to our HMDA survey. Contribute your data to this month’s Economic and CU Monitor survey so we can provide your credit union with meaningful data reports and support our advocacy efforts on your behalf.  The topic this month is HMDA reporting.